BOSTON — The state House of Representatives has approved a proposal to stop “equity theft” from property owners who fall behind on their local taxes, which comes in response to federal and state court rulings that deemed the practice unconstitutional.
The bill, which passed Wednesday by a vote of 154-0, would establish a process allowing delinquent property owners to claim “excess equity” within 60 days of a foreclosure sale or seizure by local governments.
The excess equity would be determined by deducting the tax title account balance owed to a local government on date of a foreclosure judgment, the cost of appraisal, and other related expenses, according to the proposal. Property owners would need to file a claim to recoup the excess equity.
The changes are a matter of fairness to property owners who shouldn’t lose equity in their home that they’ve built up over years because of an unpaid tax bill, lawmakers said.
“No one, and no entity, should gain a windfall profit in a split second by stealing every bit of equity someone else has built over decades or a lifetime,” state Rep. Tram Nguyen, D-Andover, said in remarks ahead of the bill’s passage. “Not here. Not anywhere.”
Another architect of the bill, state Rep. Mark Cusack, D-Braintree, said the changes are aimed at “protecting property owners and making towns whole” and ensuring that excess equity is “returned to the rightful owners.”
To help prevent property owners from slipping into foreclosure, the proposal would require local governments to provide advanced notice to people who have fallen behind on their taxes and at risk of having a lien placed on their property.
Movement on the legislation comes amid pressure on lawmakers to act following a series of court rulings over the past year holding that government can’t take value of someone’s property beyond taxes owed without reimbursement.
A 2023 U.S. Supreme Court issued a ruling in a Minnesota tax foreclosure case that effectively deemed the practice unconstitutional by siding with a 94-year-old woman over her claim that a county government violated the Constitution by keeping a $25,000 profit when it sold her home in a tax foreclosure sale.
Chief Justice John Roberts wrote in the ruling that taxpayers are only required to pay the government what it is owed and anything beyond that is an unconstitutional taking of property.
“The taxpayer must render unto Caesar what is Caesar’s but no more,” Roberts wrote, in a reference to biblical scripture.
In April, a Massachusetts judge added to the pressure on lawmakers to take steps to comply with the high court’s ruling. Superior Court Judge Michael Callan’s ruling in a Hamden County lawsuit deemed the law “unconstitutional,” saying “the statutory scheme, in its present form, is untenable and requires Legislative correction.”
Massachusetts is among a dozen states, plus Washington, D.C., with tax foreclosure laws allowing local governments or investors to take dramatically more than what is owed from homeowners who slip into default.
Under the state’s foreclosure law, cities and towns can sell or keep tax liens on delinquent properties. The lienholder — whether it’s a local government or investor — can file for foreclosure once the debt is six months old.
Once a property is foreclosed on, the lienholder gets a deed and can keep or sell it. A lienholder can keep profits from the sale, under the law.
Critics of the practice, including the Boston-based New England Legal Foundation, argue that if the government seizes a home to collect overdue taxes the homeowner should be allowed to collect the surplus revenue from the sale once the taxes are paid.
Dan Winslow, the foundation’s president, said the House’s plan to fix the law “strikes a fair balance between the need for cities and towns to collect taxes for local services while protecting homeowners from being cheated out of their hard-earned equity.”
A 2022 report by Pacific Legal Foundation found homeowners in Massachusetts and other states collectively lost more than $777 million in savings on more than 5,600 homes based on their market value, above what they owed in taxes. On average, homeowners lost 86% of their equity, the group said.
Local governments, which often sell properties for a fraction of market value, collected about $26 million more than they were owed on 1,300 homes, the report said.
Meanwhile, private investors collected an estimated $250 million more than they were owed on about 2,600 homes, the report’s authors said.
In Massachusetts, the report identifies about 315 homes in the state — including several in Lawrence — that have been affected by home “equity theft” totaling more than $48 million.
The House’s excess equity proposal must be approved by the state Senate before heading to Gov. Maura Healey’s desk for consideration.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at [email protected]
By Christian M. Wade | Statehouse Reporter
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